How the Leaked Repeal and Replace Draft Bill Would Transform Medicaid

There is little doubt now that Republicans have set their sights on Medicaid as part of their effort to repeal the Affordable Care Act (ACA).  On February 24, 2017, a House Republican Discussion Draft Bill (Draft Bill) dated February 10, 2017, was leaked to the press.  The Draft Bill repeals major provisions of the ACA and includes some replacement proposals as well.  However, one of the Draft Bill’s prominent focus areas is Medicaid.  Specifically, the Draft Bill would overhaul Medicaid’s financing structure by instituting per-capita caps on state Medicaid expenditures and repeal the Medicaid expansion.

A mark-up is scheduled for this week, and details of the Draft Bill are certain to change.  That said, many of the broad proposals included in the Draft Bill are based on or are identical to prior Republican healthcare proposals, such as the Senate amendment to H.R. 3762, debated in the Senate in December 2015, Speaker Paul Ryan’s “A Better Way” released in June 2016, and the House GOP’s “Obamacare Repeal and Replace” Policy Brief released in February 2017.  Below are some high-level highlights from the Draft Bill as they relate to the Medicaid program.

Medicaid Financing

Beginning in 2019, the GOP Draft Bill proposes to replace the existing open-ended financing structure of Medicaid with a per-capita cap, paid to each state depending on their Medicaid expenditures for FY 2016 and a set of other complex reconciliation instructions applicable to each FY thereafter.  In other words, FY 2016 will serve as the base year for determining the per-capita cap, and the caps will grow in-sync with the medical component of the Consumer Price Index. Any overruns that the state experiences will come out of its Medicaid payments for the following year.  However, the Draft Bill does not discuss the scenario in which a Medicaid program is underpaid, and what the state’s recourse in that event may be.  Underpayments may be particularly common due to the fact that the Draft Bill would make payments to states only for expansion enrollees who “do not have a break in eligibility for medical assistance” exceeding one month.  Considering that Medicaid enrollees commonly fluctuate between Medicaid and other forms of coverage, it would be unsurprising if payments to states often do not account for the actual expenditures the state experiences.

Also of note is that the disproportionate share hospital (DSH) payments and Medicare cost-sharing payments will not be included in the per-capita calculation and will be presumably paid outside of it.

Essential Health Benefits (EHBs)

The Draft Bill would eliminate the EHB requirements that currently apply to Medicaid benchmark coverage for dates after December 31, 2019.

Section 1115 Waivers

Under the Draft Bill, expenditures and payments under a state’s Section 1115 waiver will be treated in the same manner as if the state did not have a waiver and were instead covered under regular Medicaid.  In other words, states with waivers are not penalized for having a waiver.  However, if a state’s waiver contains payment limitations (such as limiting payments because the waiver imposes an enrollment cap), the limitations in the new law, not the waiver, apply.

Medicaid Expansion

Beginning in FY 2019, the enhanced FMAP for the Medicaid expansion population will be reduced to 80%.  Additionally, because the base year for per-capita payments is set at a state’s 2016 enrollment and expenditures, states will be unable to inflate their per-capita allotments by accelerating enrollment of expansion-eligible individuals before FY 2019.

Medicaid Disproportionate Share Hospital (DSH) Payments

The Draft Bill eliminates the annual reduction in disproportionate share hospital payments which was required by the ACA.  And as noted above, DSH payments would not be included as part of the per-capita payment system but rather paid outside of it, presumably.

Planned Parenthood

Payments to states through any federal program, including Medicaid, for services provided by Planned Parenthood would be prohibited.

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